VALUE: After Hours (S02 E47): Investors Be Thankful, Horsebetting, And Buffett’s Hitting Coach Munger

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In this episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle chat about:

  • Horsebetting – Crist Is The GOAT On Value
  • Investors Be Thankful
  • Buffett’s Hitting Coach Munger
  • U.S Lottery Ticket Winners
  • Venetian Double-Entry Bookkeeping
  • #neversell
  • End Of Year Selling
  • Chris Cole – The Endgame
  • The Asset Shortage
  • Terry Smith Likens The Current Environment To The Long Depression
  • Starting In Public Equity Investing
  • QRTEA vs ZM Update
  • Why Deep Value Does Better
  • Wicket-Keepers And Catchers

You can find out more about the VALUE: After Hours Podcast here – VALUE: After Hours Podcast. You can also listen to the podcast on your favorite podcast platforms here:

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Full Transcript

Tobias: I think we’re live. Do you guys want to have a quick look at the–

Bill: Dang, dude, that was good timing. Good timing, sir.

Tobias: Everything has tried to die this morning. With any luck, we’re live. It’s 10:30 AM on the West Coast, 1:30 PM on the East Coast. I think it’s 6:30 UTC, and it might be 6:30 AM Australian Eastern Standard Time.

Bill: I do think we’re live. I think it’s official.

Tobias: You beauty!

Bill: Yeah.

Tobias: So, just for everybody at home, my complete setup just died. This is on my laptop. I’ve got no idea if the laptop’s up to it. We’re going to find out. How are you, gents?

Bill: We all hope.

Jake: [laughs]

Bill: It’s not.

Jake: What year are you in now, Toby? [laughs]

Tobias: There’s lots of wacky stuff going on here.

Bill: All right. Well, let’s get this started because this is Value: After Hours, and it may crash at any moment. So, I’m Bill Brewster. I’m here with your cohosts, Toby Carlisle and Jake Taylor. Jake, what are you going to be talking about today?

Jake: I am going to– giving our Thanksgiving in the US this week, I’m doing “On being a thankful investor,” is what I’ve titled this segment.

Bill: That’s some loser stuff.

Tobias: [laughs]

Bill: Toby, what are you going to talk about?


Tobias: [unintelligible [00:01:27] podcast, all of a sudden, he’s just–

Jake: I know, right?

Tobias: Too big. You’ve got the– [crosstalk]

Bill: That is so not true.

Tobias: You’ve got Beyoncé.

Bill: [chuckles] That’s fair. Anyway, what are you talking about?

Tobias: Well, the thing that’s on my foremost on my mind is the complete collapse of my entire podcast setup here. So, small value has been ripping. I’ve been doing some writing. I’m going to talk about all that. [crosstalk]

Bill: I think we’re going to let you go last so that you can get your head all back in the game.

Tobias: Get my head back in the game.

Bill: I’m going to talk about horse betting.

Jake: Yes. Good.

Bill: Right after this.

Jake: Bill’s bringing the veggies this week, and I appreciate that.

Horsebetting – Crist Is The GOAT On Value

Bill: Yeah, a little bit. Actually, I’m going to mess it up. Michael Mauboussin. Mabo-sinn? Maba-ssan? What? I don’t know. Whatever. I’m sorry.

Tobias: Mauboussin. From the horse’s mouth. He tells me Mauboussin.

Bill: This guy, legend, replies to tweet, me, loser, has on Twitter. And I have the nerve to not read it right away. So, how life gets. I don’t read it. Somebody pops into my feed liking it. I was like, “Oh, that looks like a good article.” And then, I was like, “Oh, that was a response to a tweet that I had.” And then, I thought, “You’re an idiot to not read this.” So, I clicked it open, and it’s a great article, I’ll retweet it or we can put it in the show notes, about how basically, it all goes to Charlie Munger’s parimutuel system and viewing stocks like horses. And the quote that really stuck out to me was, the sucker money isn’t the bet that loses necessarily. It’s the bet that picks the horse with the worst odds.

So, I think it’s not a stretch to say that at least the narrative is that it’s the horse that matters. It’s, “Oh, hypergrowth,” and this and that, and it’s like, “Okay, I get it.” But the odds offered used to matter, and the favorite still wins the race sometimes, that people still get paid out when the favorite wins the race. The point, oh, my goodness, Toby, you’re going–

Jake: Zoomed in on us.

Tobias: Sorry, it’s not live. It’s not coming out live. Don’t worry.

Bill: You’re ruining my thought. Anyway, so the favorite can get you paid. But the point is, over enough series of bets, if you’re laying bets against unfavorable odds, then you’re not the house, you’re the player. I was thinking about it in the shower, where I do all my good thinking, and I thought– people bring up Discovery because I had pitched Qurate, and actually Andrew Walker wrote is DISCA the next Qurate. There is– media is something I know a little about. I don’t particularly like Discovery’s position, but if you’re going to play this game, that’s not really the right question to ask, I don’t think.

It can be because in a horse race, a three-legged horse is never going to win, no matter how good the odds are. But there’s some cutoff where a horse can win the race. Once that cutoff starts probabilistically, I think you need to start assigning odds to what your expected value is. There’s probably a price that makes sense for DISCA, as opposed to say, I don’t know, Netflix. Netflix is the horse that’s the favorite, are the odds offered worth it. I don’t know. But I think those are the conversations that you got to be having. And I think that maybe the markets rewarded people that either aren’t having it or having a much smarter conversation, I don’t know. But the fact is, I view a multiple as an implied expectation and/or perception of certainty about the future and I think human behavior is such that as a thesis gets proved out, the optimistic outlook gets priced too high. And that is how things begin to underperform, and that is how other things begin to outperform. And that’s just sort of the nature of markets. I think it’s a pretty important thing for people to think about right now.

Tobias: I agree with all that. While you’re doing that, you might not have noticed, but when you went to my camera for a moment. And It went to a different camera.

Bill: Were you going in and out while we did it?

Tobias: I think I’ve got the mic fixed. Can anybody confirm that? I think it was coming– I had it set up, so it’s coming through– [crosstalk]

Bill: Toby, gee! We’re doing a podcast, man!

Tobias: Let me respond to it. I 100% agree with all of that. I think that that’s all a very useful analogy for describing what we’re doing. But I sometimes think we overcomplicate these things for ourselves by trying to– and I’m guilty of this more than anybody else. I like your analogy. I like Mauboussin’s analogy. I sometimes think that if you just sit down and work out what you think this thing is going to return and then you can get some comfort around in actually getting there, it really doesn’t matter what everybody else thinks about the market or the particular. And it doesn’t matter if it goes against you either. Because you’ve locked in a certain amount of return for yourself by buying at any given price, assuming that your analysis is right, assuming you’ve some sort of margin of safety built in. I’m just sort of at that point where it’s been such a long period of underperformance for value, and a lot of that has been do the work and see the multiple rerate against you, it’s sucks, but ultimately, you just have to get comfortable with that. Otherwise– the stock market starts wagging– you become the tail on the stock market rather than the other way around.

You’ve got to focus on your own process. I think it’s an [unintelligible [00:07:54]. I think JT might have given it to me a little while ago, and it’s a stoic philosophy idea where all you can focus on is the draw on arrow– thanks to Steve MacKinnon for this one, all you can focus on is your process, as you fire the arrow, the target is to be desire. You can’t force it, all you to do is draw back on the arrow and let it go and hope that the [unintelligible [00:08:22] analysis correctly. It’s still too quiet. Sorry, guys.

Bill: You’re also breaking up a little bit, I’m not going to get picky with you. Jake, what’s up?

Jake: I mean, I think this is exactly the right way to think about it. Every single investment has some odds implied in the price. What’s amazing is if you can back into what the expectations are of everyone else based on today’s price and you can get a sense, does that make sense to me or not? And decide whether you want to accept or reject that as a reasonable proposition. And you don’t have to have an opinion on everything. And that’s also a nice part of it, and stay in your spots were the things that you know that type of horse the best and what it’s capable of, and then you have a better– you have a much better chance than of handicapping the odds that are implied in the price. And just staying within that little spectrum of the world and the odds that are offered, I think, if you do that over a long enough period of time, you can do really well. It’s when you get outside of that, or when you look for other people– Like you’re saying, the tail wagging the dog of– well, the price has been doing this, therefore, it must be good. Those are two independent things.

Tobias: To be fair, you probably– it’s hard because at some stage you also have to be is– I hope my mic is better now. I’ve been playing around with the settings in the background there. The hard thing–

Bill: Let me tell you, you’re very flustered.

Tobias: This is as flustered as I get, mate. The hard thing is you don’t want to be too rigid either. If it really is going against your hard, it’s possible that you’re the other guy sitting at– you’re the patsy at the table and you just haven’t figured something out. So, that’s hard too. No man is an island. It’s hard to just sit out in the middle of nowhere, and be absolutely certain, “I am right on this thing,” and the market is completely wrong. I’ve done that enough times, and I’ve ridden them all the way to zero. [laughs] So, I try not to too much anymore, but it’s hard. I think that’s what value guys and good investors should spend a lot of time thinking about the behavioral aspect of what they do. And most of it is just making sure you don’t do things that you know you shouldn’t do already. That’s the hard part. The rational part of your brand is probably pretty, pretty good. The rational brain probably figures out what you should be doing most of the time. It’s the emotional part of the brain, that’s the one that gets you in trouble.


Jake: Yeah, the Druckenmiller in ‘99. I knew better already, but I couldn’t help myself.

Tobias: He couldn’t even do it himself, he had to get a couple of young guys to really blow up the portfolio for him. And they did it, they achieved it for him. That’s such a great line after where they said, “What did you learn?” He said, “I didn’t learn anything. I knew it already.” Just totally honest. It’s probably why the Druck’s so grown.

Bill: Yeah, that Real Vision interview that he gave was really good. I like that. I have right now a sort of a separate problem that involves the same issue, but I’m struggling right now with this never-sell stuff. Some of these names have just ripped. And it’s like, “Okay.” I mean, I’m not trying to go with my beloved TransDigm here, I get it. But, ooh! I’m just going to throw this out there and I don’t think it’s that controversial. I get that that debt is price lower, I get that the competition is decimated. I’ve made all the arguments myself. I really do get it. I think the end markets are a little more uncertain than they were in January, no? We’re talking airline miles flown.

Jake: How did they [crosstalk]? The world was just humming along.

Bill: Business travel is just going to bounce back. This is the bet we don’t think that it’s somewhat impaired. Now I understand, they get pricing power, I get it all. I made the arguments. I’m just saying, whoever is buying that equity from me, because I sold some of it to you today, I was happy to do it. I’m not out, but I had to trim just a little because this is getting a little bit gut churning to me.

Jake: What do they know that you don’t know?

Bill: Nothing. I’ll tell you what they know. They know that they need to hit some hurdle rate. Otherwise, they’re fucked because they don’t have enough, and I happen to have the inventory that they want to buy. That’s what I– [crosstalk]

Tobias: Could be price trajectory.

Bill: Look, is it possible that it does fine from here? Yes, it is. I like the fact that they give back cash, I think it’s a great business, and that’s why I didn’t sell it all. But I had to get rid of some of it because it got gut churning to me. So, you know what? Other people think I’m stupid? Fine. Thank it.

End Of Year Selling

Tobias: It’s just so hard because here you are, you’re a month out from the end of the year and so anything is selling now is short term. It’s all going to be short term, and it’s all going to be in the next year. There was a great tweet, and I wish I could remember who said it, but it was like, “Do I sell now and capture the short-term gains and pay tax, or do I sell next year and get the long-term losses?” [laughs]

Jake: Yeah, right. [laughs] [crosstalk] –you can get long term losses.

Tobias: So hard.

Bill: I’ve already played tax game with Wells, and I’m just getting in my face right now. So, I think that I should just do things for economic reasons from here on out and not play this silly tax game.

Jake: I mean, how many people are waiting to sell in January?

Tobias: It’s rational. [crosstalk] It’s not even six weeks away. How bad can you get in six weeks?

Bill: It can get bad. It can get bad in three days.

Tobias: [laughs] I’m joking. I’m thinking about March this year. That’s funny thing. In February this year, I was talking on this podcast about COVID is going to be with us all year long. It wasn’t related to that. What I was saying was, every time we report, we’re going to be reporting the prior quarter and the results are going to be really bad. And that’s been true all the yearlong, it just hasn’t mattered. Here we are down 30,000. We finally made it.

Bill: It mattered in March.

Jake: For like a week, it mattered.

Bill: Well, look, this is the part of the argument that I do get. If you take liquidity off the table, if you take that risk off the table and allow these companies to issue debt, then year one and year two really don’t matter all that much in your DCF. I do get that. I just think people are maybe taking that thought a little too far.

Jake: What’s the difference between liquidity and solvency?

Bill: Well, I think you have a solvency problem when you run out of liquidity? I don’t really know. Well, I mean, what is it? You tell me. I don’t know, the terms that you’re asking [crosstalk] difference.

Tobias: Solvency is the ability to pay your debts as and when they fall due. But hang on, this might be– I might be–

Bill: Yeah, but you’re just going to roll all that stuff. Come on, now. [crosstalk]

Tobias: There’s two ideas.

Jake: Well, that’s [crosstalk] liquidity.

Bill: No, that’s not liquidity. Liquidity is, are you going to run out of cash? Then, there’s a question, can you– [crosstalk]

Jake: Will not be able to borrow more, that’s the–

Bill: Dude, come on, now. How long are you going to make this argument?

Jake: [laughs] Until I’m right, one time in a row.

Bill: All right. Well, that’s fine. But I think it’s been shown that, there’s just weak– I mean, look, I’m not telling you it’s not possible that we don’t have just some massive debt implosion. I mean, there is a possibility. I think that it’s pretty clear that there’s every single systemic– everybody in the system has an incentive to not allow that to happen. I think that– [crosstalk]

Tobias: But it’s always that way.

Bill: [crosstalk] –somewhere else.

Tobias: When is it ever not that way? We still get stock market crashes. We have in the past, we haven’t had one for a while.

Jake: 2008, that was a liquidity–

Bill: Yeah, but that was a liquidity crisis.

Jake: That’s what I’m saying. It happened 12 years ago. It wasn’t like we have to go back to ancient times to find the last time it–

Bill: 12 years ago and look at what they just did in March.

Tobias: That is ancient history, though, for some people to be fair.

Jake: All right.

Bill: Look at what they just did in March. I think that at a minimum, the government learned, and they overshot the other way arguably. I think you’re fighting last battle. I think the next battle is probably what the heck happens from all of this cash that flooded into the system. That’s the battle I think that’s coming. I don’t know, but that’s what worries me much more than liquidity.

Jake: I don’t think you’re wrong. I think there’s left and right tail risk.

Tobias: Yeah.

Bill: Just trying to live in the middle, like a turtle.

Jake: I know.

Tobias: Like everybody else– [crosstalk] That’s why the tails get cheap. That’s why you sometimes incentify to live in the tails. Get that barbell strategy going.

Chris Cole – The Endgame

Bill: Tell you what, it might be time to call up Chris Cole and allocate something. Not investment advice. I’m just saying.

Tobias: Yeah.

Jake: And I listened to his interview he did with, was that Endgame? I think they’re doing all these kind of scary– [crosstalk]

Tobias: With a name like Endgame, I’m shocked—


Tobias: I’m shocked that’s their perspective. It’s hard.

Jake: It is a little puckering to listen to those though.

Bill: I think that’s motivated reasoning in that stuff, though. Everybody’s trying to sell something.

Tobias: Dude, I love reading John Hussman because I just think he’s so smart and the argument is so well made. I can’t find the fault in it. And yet, just shows how long that it doesn’t matter. The fundamentals just don’t matter for a really, really long period of time. And they might, again, they probably will, probably it will be like an 18-month period. It amazes me. So, if you check the Fear & Greed indicator today, we’re at 87. We’re at like, extreme greed.

Bill: I know dude, somebody bought TransDigm from me today. I don’t need to see the indicator. I sold it to him.

Tobias: Memories are so short, it’s the best thing–

Bill: I’m sorry, TransDigm shareholders, I’m one of you. I’m just saying I had to sell some of that.

Tobias: It’s the best thing about humanity that we are so quick to just forget pain and just to charge back in. I don’t know, my memory is just a little bit longer than that. I don’t even know if you need a memory for this. It’s still going on.

Bill: I think the other thing that’s going on, and I’m probably going to mess this up, but Dan McMurtrie and I were talking about it.

Tobias: SuperMugatu.

Bill: Yeah, no doubt.

Tobias: [laughs]

The Asset Shortage

Bill: There’s this asset shortage. If you need to hit a return right now, where are you going to go? And I do think that that’s some of what’s going on right now. I just think that people have this FOMO, YOLO type, and every other four-letter word that they want to throw at it, and they’re just buying because I think they feel like they have to. And then I think momentum–

Tobias: With all due respect to Dan, what’s an asset shortage? Is that where you print a whole lot of money, and now there’s more dollars than there were before relative to the assets?

Bill: Or, you’re looking at a return hurdle that you feel like you have to hit and you haven’t saved long enough and now you’re taking riskier and riskier behavior to try to– [crosstalk]

Tobias: Oh, it’s a pension. It’s a pension issue. No, okay. It’s an asset shortage because they don’t have enough assets.

Bill: Yeah. So, they’ve got to go out and do like riskier and riskier behavior to try to generate the return.

Tobias: And there’s no yield in anything safe?

Bill: I think some of that going on. That’s why I’m sort of in Team Melt-up because it’s like, once you get silly, who cares if you double silly?

Wicket-Keepers And Catchers

Jake: What inning are we in now, Bill?

Bill: I think we probably hit the third.

Tobias: What sport are we playing? Because cricket, there’s four innings.

Bill: Well, we’re not playing hockey.

Tobias: And some of us here prefer cricket to baseball.

Bill: Well, I don’t know. Let’s see in a cricket match, you’re probably in like hour 16, so you got like five days left.

Tobias: That’s right. The test goes on for five days, but there’s only four innings. Scintillating stuff. You gotta love it. It’s about the vibe. It’s like watching golf. It’s a really nice green field. It’s nice blue sky, red ball, white clothing.

Bill: I know a lot of people like it. I don’t understand that game. Don’t you play in a circle?

Tobias: What’s to understand?

Bill: I don’t know. It is [crosstalk] hitting the ball.

Tobias: I understand baseball. It’s the same idea. You just trying to hit the ball with a stick.

Bill: You catch it with your hands?

Tobias: Well, there’s a wicketkeeper. He has gloves. Everybody else is got to catch it with their hands.

Bill: A wicketcleeper?

Tobias: Wicketkeeper. Sorry.

Bill: Okay, my bad. Why does he get the gloves?

Tobias: Because he’s got to catch more balls. Their hands get pretty– they get broken. They look like gnarled tree trunks after a while.

Bill: It’s tough to catch that many balls.

Tobias: Yeah, it is.


Jake: Oh, boy. This podcast– [crosstalk]

Tobias: Whose topic is it?


Tobias: Let’s go, JT. Get the veggies out.

Bill: Where do they stand? Why are they catching so many balls?

Tobias: They stand behind the wickets. You know the wickets?

Bill: Yeah.

Tobias: And then, there’s the bowler balls from the other end of the pitch, same name. When the batsman doesn’t connect with the ball or if he nicks it, then you need the wicketkeeper there to catch it.

Bill: Okay, it’s like a catcher.

Tobias: The catcher. Exactly. Same idea.

Jake: We just use the actual word.

Bill: Yeah, we describe it.

Jake: And help you figure out– [crosstalk]

Tobias: But you got to realize that all of this stuff is like it comes– It’s handed down from ancient to that– he was the keeper of the wicket. [laughs]

Jake: He took it home with him on the donkey.

Bill: Yeah, dude.

Tobias: [laughs]

Bill: They’re some like royal families whipping boy. They’re like, “Get back there and catch that, wicket,” whatever.

Tobias: Look, it’s the most popular game globally. So, do remember that this goes up all over the world.

Jake: More than soccer, though?

Tobias: Maybe not. I don’t know. I just made it up. That’s not a true fact.

Jake: Yeah.

Bill: I love our global fans. Especially Australian, shoutout to y’all.

Tobias: The Indians love it. Indians, probably number one team in the world at the moment.

Bill: Yeah, but you know what, I don’t think they listen as much as the Australians do. That’s what– [crosstalk]

Tobias: We got a big Indian following. Big shoutout to my subcontinental brethren.

Bill: Do we? Oh, shoutout to India.

Jake: Something about the Indian culture like draws them to value. I don’t know what it is.

Tobias: Logic? The attraction to logic?

Jake: All right. Now you’re just– that’s confirmation bias.

Bill: Tell you what’s a hot book while we’re on the topic, India, Shantaram. Everybody should read that.

Tobias: Yeah, it’s about an Aussie too, yeah, I’ve read that. That’s brilliant. You recommending that to everybody?

Bill: Yeah, man. That’s a great book. You don’t think that’s a great book?

Tobias: I just think it’s–

Jake: You can live a whole another lifetime reading that book.

Bill: People are legit at home, like what are these guys talking about? It’s melting up. And the reason is Toby got so flummoxed, he didn’t bring a topic. So, this is what y’all get.


Tobias: That’s fair. Let’s go, JT. I’ll keep thinking.

Jake: All right. We’re back on task here.

Bill: Isn’t it our one-year anniversary show too-

Tobias: Oh, is it really?

Bill: –if I’m not mistaken?

Tobias: Oh, sorry, team.

Bill: I think this is Episode 52.

Tobias: You should be having a shoutout– Yeah.

Bill: We got some sparkling water instead.

Jake: We skipped like a week or two.

Tobias: I’m having a Gunfire, that’s where you put rum in your coffee. I’m not really– [crosstalk]

Bill: I’m going sober for the month.

Tobias: You picked the wrong month to do that, mate. What are you doing? You got sober in February, because it’s the shortest month. Everybody knows that.

Bill: I like to test myself occasionally.

Jake: [laughs] February.

Tobias: It’s right after Christmas and New Year’s and all of that, right after the holidays.

Jake: Yeah, you’ve already messed up your New Year’s resolution that you got to start over.

Tobias: You feel so bad, you can spend a month atoning.

Investors Be Thankful

Jake: All right. It being Thanksgiving in the US, I thought it would be fitting for us to go through some of the reasons to be thankful. And I tried to make it more investment-related just because that’s what the only topic that we’re any good at talking about. So, without further ado, the first thing is August 2000, the SEC comes out with this ruling called Regulation Fair Disclosure. And so, Reg FD, as it’s known more colloquially, really leveled the playing field on information especially for us, smaller investors. What a gift for us now that we get the same information as everyone else, for the most part, and really cleaned up a lot of the backdoor gossip numbers that previously existed before that. So, that’s something to be thankful for. And really what it does is, it shifts a lot of how you skin this cat to the analytical abilities and the behavioral abilities as opposed to purely the information flow.

Tobias: When was FD introduced?

Jake: 2000.

Tobias: 2000, okay. Was that in response to all of the dotcom pumping? Was that the reason for that?

Jake: I don’t know what exactly precipitated it. But it was long overdue.

Tobias: What they’re doing before then? They just get the analysts in a room and they talk to the analysts? And so, you needed to be connected to a bank that had an analyst.

Jake: Right. So, they would whisper numbers about what the quarter was going to look like and tell them before they would tell anyone else. There was this cycle of, “You cover this company, but your bank also happens to be the one who gives us money for things. We have to treat you right, and then you have to treat us right, and we’re all in this together.” And that broke up a lot of that coziness.

Tobias: You’ve got to sell out security, so you’re always going to have a buy on your securities for your clients, even though– but it still goes on. You get these preposterous price targets and things on, companies because they got some inventory they need to shift.

Jake: That is true. All right. Number two, things to be thankful for, commission-free trades. I mean, this really–

Bill: No.

Jake: Yeah.

Bill: Nope. Fuck that.

Jake: If you use it right–

Bill: Nope.

Jake: -it’s a tool just like anything else.

Bill: Nope. Next.


Jake: All right. What’s your argument against that, if you use it correctly, and you’re not– it just overtrading?

Bill: Everybody’s overtrading. I fundamentally disagree with reducing [unintelligible [00:27:09].

Jake: No.

Bill: Okay. Well, I would argue if you long term, the commission doesn’t matter.

Tobias: Also cost, still expensive.

Bill: [crosstalk] percentage and total stuff, it’s like– [crosstalk]

Jake: It has made my life much easier as in managing other people’s accounts to not have to worry about commissions and especially on some smaller accounts, where I’m like, “I don’t want to incur this friction for smaller repositioning of things.” It’s a godsend, it’s great.

Bill: Well, I’m thankful for the ability to disagree with you and still remain friends.

Tobias: Well, the check that I don’t like writing is the one that goes to the IRS at the end of the year, or the one that goes to California.

Bill: No doubt.

Jake: Yeah. Listen, like anything, these all tend to be tools that can be used for good or evil, like a scalpel. All right, number three, ETFs. I think it’s amazing the ability to dial in the exposure and the flavor that you want in an increasingly fragmented rainbow of exposures. If you are trying to get a certain whatever it is, it’s a country or an industry or a valuation, or whatever it is, you can get a basket of things that you could never get before that would have been such a pain in the ass to put together on your own. I think that is actually like a really amazing thing as a tool for us to use.

Tobias: Yeah. It makes sense when they’re thematic and they’ve got to keep on changing the exposures and you don’t get a lot of that tax frictions– [crosstalk]

Jake: [crosstalk] –your own account. Yeah.

Tobias: Through to you. Yeah, that’s huge.

Bill: I’m thankful for value ETFs.

Jake: Well, whatever your poison is, there’s probably an ETF for you.

Bill: No, ETFs are legit, those are good. I’m with you on that. No disagreement, sir.

Jake: Thanks, Charlie.

Tobias: Glad we could reunite you guys again.


Bill: Yeah. So am I. I thought we were going to derail there.

Jake: Next one, platforms like Twitter and YouTube. I know this is another thing where it can be for good or for evil, like a tool, but the ability to connect with people and ideas and education and three bozos to get on once an hour or one hour a week to go through things like this. Just the ability to do that now at reasonable cost, it’s pretty incredible. It’s something to be thankful for.

Tobias: Dude, I couldn’t agree more that the– I was thinking this morning, what are the chances that you could put together a network like the one that you have on Twitter, in the days before Twitter or Facebook or any of that stuff existed? You could move to New York and you could try to tap into that network there. But the ability to discover new people who know something at the rate that you can do it on Twitter is just unprecedented. I think it’s the best– you can have a team of analysts on Twitter, like there are guys on there who are just absolute killers, who I am absolutely certain know what they’re talking about. You could just about buy without doing any of your own work if you’re comfortable that they were comfortable with something. I’m not advocating– [crosstalk] I’m not advocating for that. But I’m saying that there are guys out there who are–

Back in the day, like if you had to track this person down and you had this, I want to know about semiconductors, now I’ve got to go and find the semiconductor guy and talk to him that semis for– And why is he going to give you the two hours to talk to you? He can put it in his Substack, you can go and read it, you can make up your own mind.

Bill: Shout to [unintelligible [00:30:51] all the time. I couldn’t agree more. I love Twitter.

Jake: Next up, just public markets in general. The idea that there are businesses that we can buy that are world class, and you can get it in a tiny little fraction of it and as a plebe, be able to do this is something that’s truly amazing. I mean, it wouldn’t be hard to imagine a world where everything was a private company, and you couldn’t get access to it, and then what are you going to do? You’re grinding it out at a job, I guess, or trying to figure out another way of getting equity in something. What a gift for us.

Tobias: To be fair, the Romans did trade tax farming contracts, in the whatever their marketplace was called, it just escapes me, but I’m pretty sure the hive mind will know.

Jake: Acropolis?

Tobias: The Acropolis, is that where trade them? That could be right.

Jake: I don’t know, maybe right. [crosstalk]

Tobias: Name another area in Rome. [laughs]

Jake: Although didn’t they tie them also with a lot of the religious places were also the markets. And that was one of the advances of Western civilization was that they– because otherwise, like, they made it holy that way, there was less violence and cheating and things like that, kind of cleaned up the market. Anyway.

Bill: Goldman Sachs would have provided a solution.

Jake: Yeah, exactly.

Bill: Thanks to Goldman. I’m thankful to Goldman Sachs.

Tobias: [laughs]

Jake: I think just the idea that being an investor makes you a more interesting person [crosstalk] in the world, and how it works, sort of that Robert Hagstrom’s– What was it called? Sorry.

Tobias: The Forum

Jake: Forum. Okay.

Tobias: Thank you [unintelligible [00:32:40].

Bill: [laughs]

Jake: So, being an investor making you a more interested person in the world, and trying to figure out how the world works, I think that that’s– Robert Hagstrom talks about it in the Investing, I think, The Last Liberal Art, something like that, and pretty good book. But just that idea that you take a much greater interest in what’s happening around you when you have economic potential of doing something about it.

Tobias: I like that one. I think that it’s a trap there because if you’re interested in geopolitics, if you’re interested in– read The Economist– I used to read the Far Eastern Economic Review, that doesn’t exist anymore. That was great. If you wanted to know who the treasury secretary of Malaysia was, like, I knew that, like just totally useless information. But if you want to be a macro guy, like you probably got to know that kind of stuff. As a value guy–

Jake: You don’t want to take an interest in the world. [laughs]

Tobias: It’s not that I don’t want to take an interest. It’s a double-edged sword. You got to be a little bit kind of careful. You’ve got to curate the information that you put inside your brain a little bit more than if you’re a macro guy, you’ve got to know everything about everything all the time. That’s hard.

Jake: Exhausting.

Tobias: I know nothing about nothing most of the time, and even that’s hard.

Jake: Yeah.

Bill: I think being an investor has made me a lot more interested in humans than I maybe otherwise would have been–

Tobias: Human behavior.

Bill: I think that’s pretty cool. Yeah.

Tobias: Yeah, for sure. There’s no place that you can get a better window into human psychopathology than the stock market.

Jake: Yeah.

Bill: Yeah, and a lot of the money that I made money has been psychological theses more than anything. I actually think that’s a lot of the money that Buffet’s made. Obviously not all, but a lot.

Jake: The other half is sugar addiction.


Bill: Yeah, addiction is human.

Tobias: I always think it’s funny when they run– You run some sort of poll, not on Twitter, I’m talking about the ones that are a little bit broader. You run a poll, where you ask people like, what asset is going to outperform over the next 12 months? Is it going to be gold? Is it going to be small-cap equities? Is it going to be EM equities or something like that? And people answer, like, why bother asking? Go and have a look at where this stuff is in the market. That’s how you know what everybody thinks is going to happen over the next period of time. What they tell you and where they actually put their money, those are two completely different places.

Jake: What’s the answer though? What’s going to outperform?


Tobias: Small value.

Venetian Double-Entry Bookkeeping

Jake: Next up on the list, we have accounting. And I know that, it gets a bad rap for not keeping up with intangibles. I get it, I’ve read all those books. I don’t disagree. However, just as a system for giving the owner and/or a potential owner the ability to look under the hood of what’s happening inside of a human organization, accounting is a pretty incredible thing, actually. And you get a tremendous amount of information in a relatively condensed format. So, I’m thankful for accounting.

Tobias: Double-entry bookkeeping. Who said double entry–? It’s someone like Buffett or Munger has said double-entry bookkeeping, that’s being one of the great wonders of the world.

Jake: Was like a great innovation.

Tobias: Yeah.

Bill: I think we must be stretching on things to be thankful for here.

Tobias: [laughs] Venetians said that?

Jake: No, I think they invented it, didn’t they? Somebody in Italy. Anyway.

Tobias: Who invented it? Yeah.

Bill: Yeah. Bill, just hang in there. All right.

Tobias: I like it. I like this so far.

Bill: I’m just saying, telling me to be thankful for accounting I studied this stuff in college. I have flashbacks of doing pension calculations. I’m not going to be thankful for that.

Tobias: But it’s the crazy thing, right? When you’re it studying in college–

Bill: I do like it.

Tobias: –how hard it is, how dry it is. And then, the first time that you want to understand the business, all of a sudden, you’re reading it like it’s a novel, because you want to understand what’s going on. You’re looking at the changes from year to year. You’re looking at what the balance sheet does relation to the cash flow statement, and the income statement. All of a sudden, it’s a story. The first time you learn it in school, it’s another language and it sucks. But when you need it, when you want to use it for something, all of a sudden, that becomes incredibly useful.

Bill: Yeah. And the other thing is, we’re not accountants. I don’t mind interpreting accounting. I’m glad I’m not preparing it.

Tobias: I kind of think that the very best investors should be forensic accountants. So, I just don’t know how you could get– It hasn’t come out yet, but I’ve recorded with Steve Clapham who’s behind the balance sheet. He’s got a new book, shoutout to Steve, called the Smart Money Method. And he talks a bit about, he’s got lots of little gems in there about how he goes through the notes and what he looks for in the notes. He says one of the things you want to look at is the revenue recognition. And he said a client of his had $100 million in one of the positions. And he called them up and he said, “What do you think about this revenue recognition statement here?” And they said, “Wait, I’ll come back to you.” And then they came back and they’re like, “Yeah, wait, what does it mean? We can understand it?” He goes like, “That’s a problem, right?”

Jake: Yeah, right. It doesn’t matter, it’s going up in price– [crosstalk]

Tobias: That’s it. How’s the stock price? Stock price, bro?

Investing Exemplars Warren & Charlie

Jake: Yeah. All right. Next up, exemplars in our world like Warren and Charlie. I mean, just– I know we talk about it a lot, but just the idea that these guys are so generous with the things that they’ve learned, speaking about it publicly, sharing as their journey of learning has unfolded. They didn’t have to do that. They could have just quietly just kept raking in the cash for decades, but they’ve tried to do something more than that and provide us with something to aspire toward. So, I’m very thankful for that.

Tobias: I have said time and again to you guys, and maybe not publicly, but I think it’s incredible and so fortunate that we live in a time and age where the great industrialist of the day, and he’s probably the industrialist of probably 100 years either side, who knows, but Buffett is the great industrialist of the day. And he’s just told everybody what he does. It’s not like the dark genius of Wall Street– what was his name? The robber barons when all of a sudden at first kicking off, like Cornelius Vanderbilt, none of those sort of guys really told anybody what they did, because why would you let anybody else know how you’re making your money? But Buffett’s gone to great pains to explain in detail. Even still, you can’t do it because it’s too hard. He’s described it so you could– if you had the chops, you could go and do it. But it’s very, very hard.

Bill: I tell you, just to make it a little bit more tangible, it circles back to the FinTwit discussion. The minds that are on FinTwit that have decided to share their knowledge, the idea that Mr. Mauboussin can reply and cares enough to do it. Or yesterday, I’m asking a question about rebalancing a portfolio and my man, GromitCap, came in and asked me a completely different question that got my mind focused on what actually matters and not some stupid stuff that I was thinking about. I keep going back to it, but this wealth game/status game is the biggest change in my life that when I heard it put that way, made the most sense. But I’ve just found that by trying to honestly give people in that community specifically, which is where I built most of my network, by trying to legitimately add value to their life, the amount that has been reciprocated has just been– it’s tenfold.

Tobias: What’s the status–? [crosstalk]

Bill: Shoutout to the Buff Dog and Mung, because I love them.

Tobias: What’s the status game?

Bill: Well, status is when you got to tear somebody else down to feel good. Wealth is like, we’re all working together.

Tobias: I see.

Jake: Zero sum and nonzero sum.

Bill: That’s right.

Tobias: I know that there are a lot of huge fans of Munger out there. I’m a more of a Buffett guy than a Munger guy to the extent that you can differentiate between the two.

Jake: Ooh, wrong.


Bill: Yeah, right.

Buffett’s Hitting Coach Munger

Tobias: I’ve said this to you guys before, but I think that Munger is one of the great hitting coaches. Buffett is Tiger Woods, and Munger is his hitting coach. I think it’s important because sometimes you get– anybody who’s played any sport, you go through four stages. When you start doing anything, you’re unconsciously incompetent. You’re bad and you don’t even know what you’re doing. And then, you do it for a little bit, and you become consciously incompetent. All of a sudden, you know how bad you are. And then, through a lot of effort, you can get yourself to this point where you’re consciously competent. By which I mean, if you concentrate really hard on what you’re doing, you get it right.

But anytime that your mind wavers, you blast the ball off into– when you’re playing golf, you hit it off the fairway, you hit into the water, you shank it, you top it, something like that. You hit it fat, you just throw a big divot there, and you can’t work out what’s going on. But you get to this point when you’re very, very good at something where you’re unconsciously competent. It’s like driving a car. The first time you get in a stick, you’re moving four things at once, four limbs that wants to get through stuff, and you just don’t know what you’re doing. And then, one day you’re driving along, you realize you’re moving all four things and driving around a corner and you’re like, “Holy cow, how did I do that?”

But this is the problem, when you get unconsciously competent, every now and again, something happens and you just forget how to do something and you can’t remember, because you can’t remember how you did it consciously because you’ve been doing it unconsciously for so long. And that’s when you need a hitting coach. And the hitting coach says, “You’ve started doing this bad habit,” or something like that. And that’s how you evolve, and that’s where hitting coaches are important. And that’s my topic.

Jake: Whoa!

Bill: Boom!

Tobias: Just got it in under the wire.

Jake: The value– [crosstalk]

Bill: I like it, man. Strong.

Tobias: JT, you got more?

Jake: I got one more.

Tobias: Let’s do it.

Bill: Real quick. I think one thing that Munger would be good at is I could see Buffett in ‘99 or ‘98 or whatever saying like, “Yo, Coke’s run too far.” I understand I’m setting Munger up to be wrong here, but fundamentally, I think this is correct. I think Munger was probably really good at saying to him like, “Who cares? Just let it run and focus on the next deal. We’ve got this huge pile of cash here. And that’s what you should focus on. Why do you need to be–” I think Munger has a lot of very, very practical wisdom that is super, super-intelligent, and maybe help Buffett sort of get to let things go a little bit more than he otherwise would have or, just to your point, allowed the athlete to flourish. I could totally see that.

Tobias: Focus on the quality more.

Jake: I think that’s really good insight. Buffett, I think, if left to his own devices is a maniacal optimizer. And my data point for that is, you guys remember the bet that he had with Protégé Partners?

Tobias: Yeah.

Jake: Here he has some zero-coupon bond, right and it’s for a million dollars, which rounds to zero for him. It’s nothing. And he decides that that bond had run up so much, like he has to go talk to tech to get out of that bond to move it into something else. He can’t stand the fact that–

Bill: This is bothering me.

Jake: –suboptimal, right?

Bill: Yeah.

Jake: I mean, that’s insanity.

Bill: Yeah. It is. It’s focused on a question that doesn’t really matter. And I think Munger is very, very good at focusing people on the stuff that actually matters.

Jake: He probably told him, it’s 2015 and you’re getting a 40% dividend yield on your cost of that Coke every year. Just sit tight, man.

Tobias: There’s also that idea– I think it’s a machine learning idea where you have the local minima, and this is something that optimizers get in trouble. This is something that optimizers do. They optimize for the local minima all the time, and they just lose sight of the bigger picture that you could be doing something that’s suboptimal on a larger scale. And that’s what it’s also helpful to have your hitting coach or your third party. Your third party, who just knows what they’re doing, and looks at and says, “Yeah, you’re wasting your time there. Just forget that thing and move on to the– Don’t sell the Coke. Just keep on clipping the dividends and reinvesting the dividends.” It’s too hard to get in and out of that thing. You’re not going to be able to do it, then you’re going to pay all the tax, and then it’s going to run up and it won’t come back down for 20 years, and you’re going to be wrong for 20 years. So, just don’t worry about it.

Bill: Yeah, just let it go.

Tobias: Because he wouldn’t have bought it back.

Jake: [crosstalk] -buying back his TransDigm. [laughs]

Tobias: [laughs]

Bill: What?

Jake: Bill’s buying back his TransDigm from this morning.

Bill: Oh, no, no, that I’m fine with. [crosstalk]

Tobias: Would he had an opportunity to buy back the Coke? If he had sold it, let’s say he sold it optimally, would he have had an opportunity to buy it back?

Bill: Well, certainly in 2008.

Tobias: It got cheap enough.

Bill: Yeah, I’m sure. I suspect, left to his own devices, he would have probably sold and probably annoys them, but they’re bigger problems in the world.

U.S Lottery Ticket Winners

Jake: All right, last thing I have, and this is going to get a little bit more esoteric on the things, but in general, if you’re listening to this, I would posit that you’ve already won the lottery. My logic behind that are a few things. Number one, if you’re born in the US, which I know we have a lot of worldwide listeners and that’s great. But if you’re born in the US, that’s already a 1 in 20 proposition and you have an incredible tailwind at your back if you’ve been born in the US. If you made more than $1500 last year, you’re in the upper 20th percentile. So, you’re a one in five winner. If you made more than $50,000 last year, you’re firmly in the 1% globally.

Now, if we think even a little bit wider, there’s probably been roughly 10,000 generations of humans over the last, call it 200,000 years that you could really say that a human looked like a human. So, the human experience, if you were to throw your ping pong ball into the genetic lottery, would not have been nearly as cushy and easy and simple as you have it right now. So, that’s a 1 in 10,000 proposition. And then, if we think even a little less provincially, we share roughly 50% of our DNA with a banana we have, I think it’s 60% with a fruit fly, 98% with a chimp. So, of all the different things that you could have been on a DNA carbon-based basis over the last 13.7 billion years that biology has existed, you’re pretty lucky to have ended up as what you are. So, that’s one in trillions probably proposition.

So, be thankful when you’re eating your turkey on Thursday that you have the ability to do that.

Tobias: Good thoughts, mate. Sage, wise.

Bill: Two things. One, Coke, 1231, 2000, $150 billion market cap. By 2005, that was 95.5 billion.

Tobias: So, is that a third?

Bill: [crosstalk] Yeah. Second. Coach T, what sources can you recco that are like this pod? Don’t you listen to the outro music? Can nobody do it like you do it. Come on now.


Terry Smith Likens The Current Environment To The Long Depression

Tobias: I got a good question in here. I love that session, JT. That’s a good one. I’m glad you did that one today. Here’s a good question. Terry Smith likens the current conditions to the Long Depression. Long period of deflation set off by a banking crisis versus set off by a drop in the alt sector. I know who Terry Smith is, and by virtue of the fact that I have looked at that Mikhail Samonov, 200 Years of Value, I also know what the Long Depression is. But that’s the full extent of my contribution to that question.

Jake: What year was the Long Depression?

Tobias: I think it finished in 1904.

Jake: Okay. And we’re in 1904 right now?

Tobias: I don’t know if he’s saying it finishes. I think he’s saying that– he likens the current market conditions to the Long Depression, long period of deflation set off by a banking crisis. So, I guess that that would mean that the 2007, 2008, 2009 is the banking crisis.

Bill: I have no idea.

Jake: The problem with all of these things are that the data sets are just way, way, way too small to draw inference as to what the next thing is going to be.

Tobias: You’ve just got to be a little bit careful with the analogies too. I’m guilty of this as anybody else. The things are alike, but they’re not the same. There’s always something different.

Bill: Do you want to know what it’s like right now? It’s crazy uncertain, asset prices are crazy high and there’s financial repression everywhere. So, I don’t know what that’s like, but that’s where we are.

Tobias: I don’t know if it was some states, but 25% of the folks that aren’t getting enough food. So that’s like Great Depression levels.

Bill: Meanwhile, there’s a speculative mania going on.

Tobias: It’s crazy.

Bill: So, I don’t know. There’s some wild stuff happening. What I will tell you there’s some good value out there though.

Tobias: It’s true.

Bill: Still got time to melt up.

Jake: My mind is still trying to square this number of people not paying their mortgages and rents.

Tobias: Right, that’s because they’re trying to find food. They’re using it for food. They’re using it for frivolities like food, poor bastards.

Jake: I don’t know how we get DOW 30,000 and celebrate in the same breath.

Bill: Well, your pricing 18 months forward.

Tobias: Nobody’s pricing 18 months forward.

Bill: That’s right. We’re five years now, baby.

Tobias: I think we’ve been–

Bill: We’re all just terminal value investors.

Starting In Public Equity Investing

Tobias: Hit us with the questions, guys. Here we go, I will throw it up. What advice would you give to someone trying to break into public equity investing? I assume this is not just doing it on your own behalf because– this is what I would say. there’s two parts. Go to Columbia, get your MBA at Columbia. And then, you walk into a really good value hedge fund in New York, in Manhattan.

Bill: This applies to no one.

Tobias: Right. But I’m saying that first. If I had my time again, that’s what I’m going to do.

Bill: I agree with you. Yeah.

Tobias: And then, any other good value program at a name MBA, that’s a good path. Now, that’s looking to apply to 90–

Bill: Now let’s talk about how us degenerates do it.

Tobias: So, that doesn’t apply to you 99% people.

Jake: [crosstalk] close, didn’t they?

Bill: That’s right.

Tobias: There’s some.

Bill: It’s called Vanguard.

Jake: They’re called family offices now.

Tobias: For the rest of us, this is the approach. I think this is a good approach. You should be investing your own account. You’ve got to have your own account, making your own decisions, you should be writing those decisions down. I think you should be doing it on a blog, you don’t have to do it under your own name, or a Substack. Do it anonymously if you want to. And that does two things. One thing it records everything that you do. So, when you forget why you did something two years later, you can go back and look and you can say, “I’ve developed a lot since then, and I remember now why I did the thing. And it was right or it was wrong, and I should be careful that in the future, or I should do that again in the future.”

The other thing is, if you get good at it, there’s this very large universe of people out there who read this stuff who are always looking for really good ideas and good thinkers. And I know lots and lots of people who have gone from free blogs to either running their own funds or analysts seeing another big fund. So, that’s certainly a path that works. So, that would be my advice.

Bill: Yeah, I just think you’ve got to look for people. Twitter’s a good place. Look for ways to add value to people that you respect. And I think if you add enough value, value will come back to you. I just think that’s how the world works. I’m not trying to be like The Secret all over again, but I don’t think it’s that difficult.

Jake: I don’t want to dissuade anyone.

Bill: Helps to know a guy like Toby, that’ll put you on a podcast when you’re a nobody.

Tobias: [laughs] You’re wise, you’re smart.

Jake: I don’t want to dissuade anybody and make this seem like we’ve pulled up the ladder into the treehouse or something behind us. But I would maybe encourage you to think if there’s anything else that you wanted to do in the world that might be more societally beneficial and productive, unless you’re really, really, really passionate about it. If you’re just there and you just want to make money, I would say that there are probably things that you could do in the world that are better for everyone, including yourself, probably, but I’ll just be the contra on this one.

Bill: Some questioners asking me why do I want to do the hard quality for a reasonable price strategy? I don’t know. Why do you want to own good stuff at cheap prices? What are you asking? I want to do it because it’s smart. Next.

Tobias: [laughs] Well, that was the question.

Bill: I’m not trying to be rude. I just don’t get it. Rather than buying good things at good prices, I should be wanting to buy the crappiest crap out there? That doesn’t make sense to me. I’ve got to do what I got to do. I’m not trying to– you live your life. I’m trying to put up the best return ever. I’m trying to get the best return that I know how to realize. For me, I need a lot of quality in my portfolio to do that.

QRTEA vs ZM Update

Bill: By the way, I sized into Qurate, and if you think that that was easy to do, go do it, and then we can talk.

Tobias: How’s Qurate going?

Bill: It’s going well.

Tobias: How soon? Where’s the chart so we can watch the horse race?

Bill: Qurate’s up 48% since the bet and Zoom is up 41%. So, I’m taking the lead.

Jake: And it’s going in your direction right now.

Bill: I didn’t mean to sound so harsh to that questioner, I’m just saying– I think it’s sort of a silly question.

Tobias: I would say that deep value is much, much easier to do than quality reasonable price. It’s just to find stuff that is cheap on the ratios. It hasn’t worked for a long time. So, there’s the problem that you have. But the harder thing to do is to do the Buffett style, like, can’t do a real valuation, make sure it’s growing, make sure there’s no downside, size into them on some sort of modified Kelly, that’s very, very– You’re a scratch golfer if you’re doing that stuff. So, you’ve just got to know what kind of golfer you are when you go out. Like if you want to be playing with your handicap, I like playing off a handicap. I don’t play golf, by the way, I just use these analogies because I think they’re funny.

Jake: Yeah, there’s a lot of golf analogies today. There’s Tiger– [crosstalk]

Tobias: I’m not a golfer, I don’t know why.

Bill: Dude, I’m sitting here feeling like a dick. You know what? [crosstalk]

Jake: It’s his hat. [crosstalk]

Bill: I bet that the questioner voted for one of you two as their favorite personality, anyway, so you know what? Forget you. I do love– [crosstalk]

Tobias: I think he voted for you mate. But he’s going to change his vote next time.

Bill: [crosstalk] –I’m not trying to go at anybody. What?

Tobias: He voted for you, mate. But he’s going to vote for me next time. [laughs]

Bill: Damn it. That’s like a two-vote swing for me. I don’t know where I’m going. I’m just sitting over here on tilt because I was rude to somebody that likes to tune in.

Tobias: Somebody’s– no, authenticity.

Bill: Oh, dude.

Tobias: [crosstalk] -telling the truth.

Bill: Here’s the thing about value. I like value the way that you do it. For me to run a discretionary portfolio in like a lot of those deep value names, I don’t want a bunch of bombs going off around me and–

Tobias: I don’t like it either.

Bill: –maybe it’s suboptimal or whatever. But in an ETF structure, that makes more sense to me, because it’s more mechanized. I guess that the part about the deep value strategy for me is, in my opinion, that strategy says, I am going to take advantage of the emotional biases of the market, but somehow I am the one that is so stoic or whatever, that I can exploit those. I think that a vehicle can exploit those much better than a person can. So, as a person, I’m trying to exploit some advantage, I just think sitting and waiting for the pitch that I see and then swinging is what makes sense to me.

Why Deep Value Does Better

Tobias: I think that over the long run, deep value does better. But I think that, like you say, it’s extremely hard to do it. It’s emotionally– not emotionally, but behaviorally difficult to do. The other one is sort of more difficult– It’s also behaviorally difficulty to do, but it’s also you really need to know what you’re doing to do that stuff, you really need to be able to value and you need to know why you don’t bias like– you really need to know why you’re doing everything you’re doing. There’s just so many trapdoors and mines in– Companies get cheap. Often, they’re cheap for a reason and you’ve got to figure out, is this thing for a good reason or is this cheap because everybody’s just– What are the chances that you’re smarter than the market?

You got to actually be like the scratch golfer to be smarter than the market, I think. You’ve got to be better than scratch, like, be a scratch girlfriend show up to a pro-golf dance, see how good you are, you’re not that good.

Bill: Or you’ve got to wait a lot. I don’t disagree with what you’re saying at all. But I definitely think you’re right to do it consistently. It is really, really, really difficult.

Your Next Investment Is The One That Blows Up

Tobias: You need to be a monk. Your next investment is the one that blows you up. That’s the awful thing about this game, that you can have a 10-year track record, you could be like a 15-year track record, it doesn’t matter how long your track record is. It’s the next thing you do that blows you up.

Bill: Yeah, that’s the thing that sucks. It’s like, “Okay, great. That’s one good idea. Next.”

Tobias: That’s something [crosstalk] to try it.

Jake: [crosstalk]

Bill: And the other problem is the next one, if you’re doing well, is going to be your biggest. So, the next one’s always the one–

Tobias: Right. It’s always the biggest. That’s it.

Bill: Yeah. No doubt. It’s not easy.

Tobias: When you’re Buffett, putting 40% of your portfolio into a financial that had an accusation of fraud against it, you’ve got to know what you’re doing when you’re doing that. That was American Express. That’s full time, amigos. We’re going to–

Bill: Wait, real quick. That’s another one that I think he did– hey, he had a psychological edge on because everybody else was looking at something else and he was looking at consumer behavior and stuff. I think that’s been a couple of his theses had been like psychological edges. [crosstalk]

Tobias: He got it right. There’s no question.

Bill: [crosstalk] -sort of picked up from– [crosstalk] Yeah, no doubt.

Tobias: He got it right. He figured out the driver of the value in that. But the way that he did it was he went and talked to the people who were accepting the cards so that he went talk to the– if this restaurant gets worried about a counterparty risk, it’s not going to take the card. So, he went in and made sure that they were taking the cards, okay, they’re not worried about the counterparty risk, it’s going to survive. It’s just going to pay a big, shitty dividend. It’s not going to go to us, it’s going to go to the plaintiffs. It’s going to get there.

Bill: One more thing. No joke. I’m thankful for you, Toby. Thank you for putting me on the first podcast. Thank you for putting Jake and I on this one. Thank you for having fans that tuned into us. I appreciate it all. So, that’s the only way I want to close it, man. Thanks for having us on your distribution network and all that. Shoutout to you.

Tobias: Of course. Thanks, JT, as well. Love your wisdom as always. Thanks, Bill. It’s a fun podcast. I enjoy doing it every week. Thanks, everybody. Have a Happy Thanksgiving.

Bill: Sorry that I pissed off somebody that bought your book.

Tobias: [laughs]

Bill: [laughs]

Jake: Thanks, everybody.

Tobias: See you next week.

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